You have just been hired by FAB Corporation, the manufacturer of a revolutionary

Question

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.

After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March:

During March, the company worked 21,000 machine-hours and produced 15,000 units. The company had originally planned to work 23,000 machine-hours during March.

Required:

1. Complete the report showing the activity variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

2. Complete the report showing the spending variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Cost Formula Actual Cost in March Utilities $16,500 plus $0.13 per machine-hour $ 21,290 Maintenance $38,000 plus $1.50 per machine-hour $ 66,300 Supplies $0.50 per machine-hour $ 11,300 Indirect labor $94,700 plus $1.30 per machine-hour $ 125,500 Depreciation $67,900 $ 69,600

Explanation / Answer

1) activity variance

2) Spending variance

Utilities 260 F Maintenance 3000 F Supplies 1000 F Indirect labour 2600 F Depreciation 0 None Total 6860 F

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